Kass: Market Loses Its Mojo

Regardless of the scope of government initiatives, it's difficult to see any sustained upside.

That may be President Obama's most important bailout task: to educate the country that there is no easy escape here, except taking our medicine, getting our fundamentals right again and working our way out of this, brick by brick, by getting back to making money -- what was that old Smith Barney ad? -- "the old-fashioned way" -- by earning it.

The public sector's cleanup of the private sector's mess represents a monumental and complex job. The "great unwind" of the leveraging-up of our economy will remain a structural issue and headwind for some time to come. Moreover, it's already February. Do those folks looking for a midyear economic recovery really suspect that a "bad bank" project can be implemented swiftly enough to have an effect by the end of second quarter 2009?

For now, patience (waiting but not passively waiting), perseverance (amid downbeat news) and perspiration (most likely tons of it!) hold the ingredients to a successful strategy in our economy and in our stock market.

From my perch, regardless of the scope of the government's initiatives, it remains difficult to see a sustained upside move in equities against the deleveraging process and against a worsening and uncertain fundamental backdrop.

Expectations for our domestic economy and for our investments are being reset, to borrow a term used by Microsoft's ( MSFT) Steve Ballmer in last week's earnings call, to lower levels.

Over the past several months, we have begun to taste the early stages of investor disinterest and apathy and societal pressures as the acceptance phase of large investment losses in individual, institutional, charitable, pension and endowment portfolios develops. The recent Madoff and Satyam ( SAY) frauds have only served to further reinforce a general loss of trust. As well, the broadcasting of Congressional committee meetings and testimony and the vivid picture of political partisanship and their incoherent policies have likely further contributed to a deeper erosion in confidence.

Know What You Own: Microsoft operates in the application software industry, and some of the other stocks in its field include Oracle ( ORCL), SAP ( SAP), Adobe ( ADBE), CA Incorporated ( CA) and Intuit ( INTU). For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.

At the time of publication, Kass and/or his funds had no positions in the stocks mentioned, although holdings can change at any time.

Doug Kass is founder and president of Seabreeze Partners Management, Inc., and the general partner and investment manager of Seabreeze Partners Short LP and Seabreeze Partners Long/Short LP.